The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of March 15, 2025 basis the Union Budget 2025-2026 updates.
Non-Resident Indians (NRIs)/Persons of Indian Origin (PIOs)/Overseas Citizens of India (OCIs) often invest in Indian real estate. The sale of such property involves tax considerations, such as Tax Deducted at Source (TDS). This article elaborates on the implications of TDS for NRIs selling property in India.
TDS on NRI property transactions
As an NRI, you can sell your residential or commercial properties to any resident Indian or another NRI/OCI. If you have inherited an agricultural property, you can sell it to resident Indians only. Regardless of the property type (residential, commercial or urban agricultural), the sale of real estate in India by NRIs is subject to TDS as per the Income Tax (IT) Act, 1961.
While making the payment, the buyer of the property is obligated to withhold a predetermined portion of applicable tax from the sale proceeds and deposit it with Tax Department. After that, you, the seller (NRI), will be eligible to claim a credit for such TDS while filing your income tax return in which you report capital gains in India. Please note, even if the buyer is another NRI/PIO/OCI or any other person, the same process needs to be followed.
Determining the applicable TDS rate
The rate of TDS applicable on the sale of property depends upon multiple factors, including:
- Whether the gain is a Long-Term Capital Gain (LTCG) or a Short-Term Capital Gain (STCG): If you have held the property for more than 24 months, it will be considered an LTCG; otherwise, it will be regarded as an STCG
- Whether you have opted for the old or new tax regime
- Amount of Income paid
- Availability of a Lower Tax Deduction Certificate (LDC)
Please note, in the case of properties gifted/inherited by an NRI, prior ownership would also be considered a part of the holding period to determine the LTCG and STCG.
The table below summarises the effective rate of TDS for different income levels of NRIs in India and the type of capital gains.
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Capital Gains | Amount of Income Paid | ||||
|---|---|---|---|---|---|
| Less than ₹50 lakh | Between ₹50 lakh - ₹1 crore | Between ₹1 crore – ₹ 2 crore | Between ₹2 crore – ₹ 5 crore | Above ₹ 5 crore | |
| LTCG Effective TDS rate (for Seller opted for New Tax Regime or Old Tax Regime) (Incl. Surcharge and Health and Education Cess) | 13% | 14.3% | 14.95% | 14.95% | 14.95% |
| STCG Effective TDS rate (Where Seller has opted for New Tax Regime ) (Incl. Surcharge and Health and Education Cess) | 31.2% | 34.32% | 35.88% | 39% | |
| Effective TDS rate (Where Seller has opted for Old Tax Regime ) (Incl. Surcharge and Health and Education Cess) | 31.2% | 34.32% | 35.88% | 39% | 42.74% |
For a detailed explanation of how to determine the amount of capital gains on the sale of immovable property, click here
Did you know?
Just like resident Indians, NRIs selling property in India can avail tax exemptions on LTCG as per Section 54, 54F, 54EC, IT Act 1961. To qualify, you must reinvest the capital gains / sale proceeds in another residential property in India, specific government bonds with certain characteristics or other assets, within a specific timeframe.
Reducing the TDS Liability with LDC
While your overall tax liability remains the same, you can reduce your TDS payout as an NRI. You can have a lower TDS rate, thereby reducing your TDS amount.
Before the sale transaction, you can register on the TRACES portal and apply online for an LDC in Form 13 along with the requisite documentation to the Income Tax Assessing Officer (AO) in India. You will have to justify a lower tax burden to the AO by disclosing:
- Any LTCG/STCG from the sale transaction; and
- Your estimated total income in India for the current year
Additionally, the AO might request the following documents to support your application:
- Number of days stay in India for last four previous years including current financial year with copy of passport to substantiate residential status
- Copy of purchase agreement
- Possession Letter, Allotment letter
- Copy of bank statement reflecting payments made towards purchase
- Current valuation report of the property to be sold (stamp duty value computation)/Circle Rate issued by Sub Registrar Office
- Details of payment received from the buyer till date.
- Copy of MOU/any agreement entered with buyer.
- If the property purchased prior to 1st April, 2001 and you have claimed stamp duty value as cost of acquisition, then stamp duty value report as on 1st April, 2001 to be provided.
Once approved, the AO will issue an LDC for a specified period pertaining to the transaction. You should ensure the validity of the LDC throughout the duration of the sale transaction.
Alternatively, the buyer can also reach out to the AO seeking the applicable TDS rate (LDC) for the seller prior to the sale transaction.
Please note, if neither the buyer nor the seller obtains the certificate, then the buyer will compute the TDS, considering the entire sale consideration as capital gain and at the maximum rate of TDS.
Let’s understand how an LDC can reduce TDS with the help of an illustration.
Scenario 1: LDC not taken
Amit, an NRI, sold a plot in Mumbai to a resident, Rahul, for ₹1.5 crore in August 2024. Amit had purchased the plot in January 2020 for ₹1.2 crore.. Since the plot qualifies as a long-term capital asset (held for more than 24 months), the applicable TDS rate will be 12.5%, along with the applicable surcharge and cess. Amit did not seek an LDC from the AO. Accordingly, Rahul, the buyer, computed TDS on the entire sale consideration of ₹1.5 crore.
The TDS computation is illustrated below:
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Particulars | Amount (₹) | |
|---|---|---|
A |
Sale consideration |
1,50,00,000 |
B |
Tax rate at 12.5% on (A) |
18,75,000 |
C |
Surcharge at 15% on (B) |
2,81,250 |
D |
Total tax (C) = (A) + (B) |
21,56,250 |
E |
Health and Education cess (D) = 4% on (C) |
86,250 |
F |
Total TDS (E) = (C) + (D) |
22,42,500 |
TDS rate = (F) / (A) |
14.95% |
|
Hence, Rahul, the buyer, will deduct ₹22,42,500 as TDS from the sale consideration.
Scenario 2: LDC is Taken, and TDS is Deducted at a Lesser Rate:
Let’s look at the scenario where Amit had obtained an LDC from the AO. Since Amit purchased the plot in January 2020 for ₹1.2 crore and disclosed the same to the AO, the AO will consider the indexed cost of acquisition for determining the capital gains.
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Particulars | Amount (₹) | |
|---|---|---|
A |
Sale consideration |
1,50,00,000 |
B |
Less: cost of Acquisition |
1,20,00,000 |
C |
Capital gain (A-B) |
30,00,000 |
D |
Tax rate @ 12.5% on (C) |
3,75,000 |
E |
Surcharge* |
NIL |
F |
Health and Education cess @ 4% on (D) |
15,000 |
G |
Total TDS (D) + (E) |
3,90,000 |
TDS rate as per LDC (F/A) |
2.60% |
|
**Refer to the relevant CII according to the indexation chart updated as per the Finance Act, 2024: Cost Inflation Index (incometaxindia.gov.in)
Amit then shared the LDC with Rahul, and accordingly, Rahul deducted the TDS at a rate of 2.60% from the sale consideration.
Please note that Amit’s overall tax liability in either of the scenarios remains the same. However, using an LDC, he can have a lower TDS rate and reduce his upfront tax outflow. He can save by ₹18,52,500(₹22,42,500- ₹ 3,90,000) on the sale of his immovable property
Ensuring TDS Compliance as a Seller
While the buyer is responsible for deducting the TDS from the sale proceeds, as a seller, you should ensure compliance from your end as well. This includes:
- Declaration of your residential status at the time of sale of property
- Obtaining a TDS certificate (Form 16A) from the buyer within 15 days of filing the TDS return
- Reconciliation of the TDS amount reflected in Form 26AS with the TDS certificate (Form 16A)
- Claiming TDS credit (if any) as reflected in form 26AS when you file your Indian tax return
Consequences of Non-Compliance
Both parties involved in the transaction may face consequences for non-compliance with TDS regulations. The buyer risks facing penalties, prosecution and interest fees for delayed TDS deposits, while the seller may experience delays in repatriating the sale proceeds to the overseas country as funds cannot be repatriated unless taxes are paid. To learn more about repatriating sale proceeds from property sales in India, click here.
Please note, misrepresenting residency status to evade TDS obligations could result in legal repercussions. Thus, sellers must ensure that buyers comply with TDS regulations.
Impact of Double Taxation Avoidance Agreements (DTAA)
As an NRI, you can avail of DTAA benefits as per the mutual agreement between India and your country of residence. Most countries, including the United States do not provide DTAA benefits on the sale of property. You should consult a tax professional or legal advisor for more details.
Conclusion
Understanding TDS is crucial when selling property in India as an NRI. You can reduce your immediate tax burden by applying for an LDC. While the principal responsibility of TDS compliance resides with the buyer, as a seller, you should ensure a true representation of your residency status and transparency in your sale transaction. For more details on the computation of TDS, you should consult a tax expert.
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